Easing inflation boosts workers’ spending power

The expected decline in inflation in the coming months should help boost household spending and benefit the labor sector, GlobalSource Partners said.

“The expected decline in the inflation rate may be expected to boost private consumption, thus supporting strong GDP (gross domestic product) performance. This in turn can paint a more positive employment outlook,” GlobalSource Country Analysts Diwa C. Guinigundo and Wilhelmina C. Mañalac said in a report.

Headline inflation eased to 3.3% in August from 4.4% in July as food and transport cost growth decelerated. The August reading fell within the central bank’s 2-4% target for the year.

The Philippine economy grew by a higher-than-expected 6.3% in the second quarter, as government spending and investment offset weak consumption.

Household consumption refers to purchases made by households to meet their basic needs. It weakened to 4.6% in the second quarter from 5.5% a year earlier.

Despite strong growth in the second quarter, GlobalSource analysts noted that labor indicators remained weak.

Unemployment rose to a one-year high of 4.7% in July as new graduates entered the workforce, the Philippine Statistics Authority said last week.

This translated to 2.38 million unemployed individuals, against 2.29 million last year. This was also 46.6% higher than the 1.62 million jobless a month prior.

GlobalSource noted any increase in the jobless rate still points to “economic disenfranchisement.”

“Any percentage increase in the unemployment rate means economic disenfranchisement of those who failed to land a job. The challenge of high incidence of poverty remains in the Philippines.”

The Trabaho Para sa Bayan (TPB) Plan and the passage of the Konektadong Pinoy bill are expected to “address structural issues in the country’s quality of economic growth,” the analysts said.

The TPB is a masterplan seeking to help upskill workers and link them to job opportunities. It is expected to be ready by November, the National Economic and Development Authority has said.

The Konektadong Pinoy bill aims to improve internet access in underserved areas. The bill remains in committee.

Source: Business World

PH economy on track to grow near potential

The economy is on track to grow near potential, the Bangko Sentral ng Pilipinas (BSP) said, and growth is now expected to hit the 6.0- to 7.0-percent target this year.

"The outlook in domestic economic activity remains firm," the central bank said in its latest Monetary Policy Report, with latest baseline forecasts pointing to within-target growth for 2024 and misses for 2025 and 2026.

The goals for both years are 6.5-7.5 percent and 6.5-8.0 percent, respectively.

A 6.3-percent expansion in the second quarter brought first-half growth to 6.0 percent, at the bottom end of the 2024 target.

"Growth prospects are relatively stable for the rest of the year," the BSP said in the August policy report, "driven by robust construction spending and the timely implementation and expanded coverage of various government programs."

Three months earlier, the BSP had said that while the outlook remained "intact," the economy would "operate slightly below potential" and that growth could fall below the 2024 and 2025 targets.

In the latest report that was released on Monday, it said that the output gap — the difference between actual and potential economic output — would "remain slightly negative in 2024 and 2025 but will close in 2026."

"Higher consumption, driven by higher real wages and stable overseas Filipino remittances, could offset the negative impact of previous policy interest rate adjustments on demand," it added.

"This will bring domestic output closer to its potential over the policy horizon."

Labor market improvements and continued investment growth are also expected to buoy potential output, which could be accelerated by key reforms aimed at promoting investments and business activity.

The BSP's policymaking Monetary Board began easing last month, ordering a 25-basis-point cut that brought the policy rate down to 6.25 percent.

Further reductions are expected to be announced well into next year, possibly even in 2026, to bring the rate back to or near where it was — 2.0 percent — before tightening began in May 2022 when inflation started surging.

Consumer price growth is estimated to fall within the 2.0- to 4.0-percent target this year with both the baseline and risk-adjusted forecasts trimmed to 3.4 percent and 3.3 percent, respectively, from 3.5 percent and 3.8 percent in the May policy report.

"The balance of risks to the inflation outlook now leans toward the downside for 2024 and 2025, with a slight tilt toward the upside for 2026," the BSP said.

Higher fares and power rates were tagged as upside risks and assigned probabilities of "medium" and "high," respectively.

Lower rice prices due to a reduction in the import duty, meanwhile, was identified as the primary downside risk.

Source: Business World

CEO optimism remains high

A majority of chief executive officers (CEOs) in the Philippines are confident that their organizations will see revenue growth in the next 12 months, despite geopolitical uncertainties, a survey showed.

Results of the survey conducted by PwC Philippines in partnership with the Management Association of the Philippines (MAP) showed that 85% of 168 CEOs are optimistic that their companies will post revenue growth in the next 12 months.

The results of the survey, which ran from July 8 to Aug. 9, showed improved optimism compared with the 79% of 157 CEOs who said they were confident of topline growth last year.

Meanwhile, 86% of CEOs are confident of revenue growth in the next three years, slipping from 87% in the previous survey.

The survey also showed that 86% of the CEOs are confident about industry prospects for the next 12 months, higher than the 83% seen in the previous survey. This is the highest level of optimism since the pandemic.

“What helped drive optimism among our CEOs here in the Philippines is mainly our country’s economic growth,” said Karen Patricia A. Rogacion, deals and corporate partner at PwC.

She noted the Philippines recorded faster economic growth despite geopolitical uncertainties, which have affected economies in the United States and Europe.

“When the year started, at the global level, we had a slow start. We are still feeling the impact of the Russia-Ukraine war as well as the impact of China’s real estate crisis,” she said.

“Several economies, such as the US and even Europe, were expecting a recession because of the high interest rates and unstable market conditions. In the Philippines, however, we showed fast growth,” she added.

The Philippine economy grew by 6% in the first six months of the year, hitting the low end of the government’s target of 6-7% this year.

In the survey, CEOs said infrastructure development, domestic consumption, and foreign direct investments are the main drivers of growth in the next 12 months.

“Given the top three drivers, it’s also been consistent that the CEOs say that our government is doing a good job in pushing for infrastructure development, forging stronger relationships with other nations, and also managing inflation,” Ms. Rogacion said.

However, 62% of the CEOs said geopolitical uncertainties arising from the Russia-Ukraine war, conflicts in the West Philippine Sea, and upcoming elections in other countries are keeping them awake at night.

“We have actually been indirectly and directly affected by challenges due to global supply chain pressures, inflation, and other related threats,” she said.

Donald L. Lim, chair of the MAP CEO Conference Committee, said CEOs fear geopolitical uncertainties as these may suddenly disrupt supply chains and operations.

“I think the geopolitics, whether Ukraine-Russia or even the West Philippine Sea, are a great unknown. We don’t know what will happen. But if that happens, it will have a severe impact on the business,” he added.

However, Roderick M. Danao, chairman and senior partner of PwC, said that some companies are already starting to manage and mitigate the effects of geopolitical uncertainties.

“A few local companies have effectively tried to manage to mitigate the effect [through] product diversification, market diversification, and supply-chain diversification,” Mr. Danao said.

“Of course, all of these have to be backed up by long-term risk management plans for the company to adapt and to proactively manage the impact of the geopolitical conflicts,” he added.

TECHNOLOGICAL INNOVATION

Meanwhile, the survey showed that 46% of the CEOs believe that their company will no longer be viable after 10 years if it continues running on its current path.

According to PwC, new technologies such as generative artificial intelligence (GenAI) are set to revolutionize business models, redefine work processes, and transform industries.

“I always believe that AI will certainly bring more opportunities rather than threats,” said Mr. Danao.

In the survey, 40% of the CEOs said that they have already adopted the technology, while 71% believe that GenAI will change how their companies create, deliver, and capture value.

Even though 78% of the leaders believe that the technology can improve the quality of their company’s products and services, the survey also showed 61% of the CEOs said that they are not yet widely adopting the technology in their operations.

Asked why there is still low adoption, Mr. Danao and Mr. Lim said that AI in the Philippines is still in its nascent stage.

“The awareness is still very low at the Philippine corporate level. We are all excited about what this AI can bring into our organization. But embedding AI is still a work in progress. There will be investments and workforce upskilling needed,” Mr. Danao said.

“We are just at the tip of the iceberg. I think you’ll be lucky to have real AI adoption across the majority, meaning more than 50%, in five years. It will be a long time,” Mr. Lim said.

Mary Jade Roxas-Divinagracia, deals and corporate finance managing partner at PwC, said AI adoption will be led by industries like healthcare, banks, financial institutions, and retail.

“And then you have one of the major industries in the Philippines, the business process outsourcing, and this can be a game changer for them, not just on the risk side, but on the opportunity side as well,” she added.

However, Mr. Lim said that the full adoption of AI may result in job losses if the workforce will not be able to keep up.

“AI won’t replace jobs. Those people who use AI will replace those who do not know how to use it. So, I think the problem is more on education because the teachers do not understand this,” he said.

“So, we have to make sure that the educational system prepares our next three batches of graduates to use and harness AI. Will there be a loss of jobs? I think there will be. Because it won’t be able to catch up,” he added.

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Source: Business World